What is the binding authority of a Surplus Lines Broker?

A Surplus Lines Broker does not have the authority to bind risks. Surplus lines insurance is intended for unique or hard-to-place risks that standard market insurers are unwilling to cover. The role of the surplus lines broker is to facilitate access to coverage by placing insurance with non-admitted insurers, which means these insurers are not licensed in the state but are authorized to operate in the surplus lines market.

Due to the nature of surplus lines and the regulation surrounding these types of insurance products, surplus lines brokers typically act as intermediaries. They are required to obtain the client's consent, take steps to ensure that coverage is appropriate, and often need to seek further approvals before binding a risk. This means that they lack the unilateral binding authority that might be granted to traditional insurance agents or brokers, who can bind coverage immediately based on the terms established with standard insurers.

While brokers facilitate the underwriting process and may negotiate terms, the ultimate binding of the risk often requires additional steps or approvals, ensuring that all parties, including the insurer and the insured, agree on the coverage terms. Thus, the statement that a surplus lines broker does not have binding authority accurately reflects their role and the nature of their responsibilities in the marketplace.